Things to Remember as a First-time Personal Loan Applicant

A personal loan allows the borrower to meet any immediate or planned financial requirements of an individual. It gives financial leverage to the borrower at times of medical emergencies, unavoidable social events, etc. People also require personal loans to fund more planned expenditures, like travel expenses, house restorations or consolidation of debts, etc.This is an unsecured loan, which is given without any security or collateral and, therefore, bears higher interest rates than secured loans. The personal loan tenure ranges from a couple of months to years. The repayment is made in the form of equated monthly instalments (EMIs). Individuals applying for their first personal loan must gain comprehensive know-how of the same.

Banks and Non-Banking Financial Companies (NBFCs) offer various types of personal loans, like:

1. Home Renovation Loan: These loans allow the borrower to carry out repair and restoration works at their homes.
2. Travel Loan: This loan enables the borrower to fund his/her travelling expenses.
3. NRI Personal Loan: Certain banks also offer loans to Non-Resident Indians (NRIs) to meet their or their families’ financial needs in India.
4. Wedding Loan: This personal loan saves parents from the hassle of worrying about last-minute shortfall or arrangement of funds for a wedding.
5. Education Loan: Borrowers can now avail the personal loan facility to finance the higher education of children.
6. Pension Loan: Retired individuals can now procure a personal loan, which is 7-10 times the amount of their pension.
7. Fresher Funding Loan: Individuals who have just drawn their first salary are also eligible for a specified amount of loan by certain banks.
8. Top-up Loan: Borrower can apply for a top-up on his/her existing loan, depending on the repayment history.

Individuals applying for their first personal loan must keep the following factors in mind:

1. Credit Score: The applicant must ensure his/her eligibility to procure loan by checking the credit score.
2. Correct Bank/NBFC: An online comparison between personal loan offers of various banks/NBFCs can be helpful in the selection of the best lender option for the borrower.
3. Documents: The applicant must keep all the relevant documents ready to ensure hassle-free and quick loan procurement.
4. Financial Terminology: It is imperative to be aware of the various terms that will be used in the loan agreement, like principal amount, interest rate, loan tenure, repayment, foreclosure, etc. This will give the applicant a better insight into the loan terms and conditions.
5. Additional/Hidden Charges: The applicant must look into any hidden/additional fees being charged by the lender.
6. Repayment Ability: The EMI payment aptitude must be computed beforehand to avoid any defaults.

Loan for the first-timers can be rejected because of:

1. Bad credit score
2. Insufficient income
3. Incomplete/Incorrect Form or documentation
4. Applying with too many lenders

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.